The final instalment in our Business Protection Assurance post series looks at Relevant Life Policies. Other posts are: Introduction to Business Insurance, Shareholder (or Partnership) Protection, Business Loan Protection, and Key Person Protection.
Relevant Life Policies at a glance:
|What is it?||Who is covered?||Who benefits?|
|A tax-efficient individual life assurance policy that company directors and owners can buy through their business, provided they are classed as an employee.||The employees of a small business.
NOT sole traders or partners.
|The family of the insured individual.|
This type of assurance is also sometimes known as a ‘death-in-service’ benefit, as the family of the insured person receives the payout, not the business itself.
Larger employers usually have a group policy covering all of their staff, although this is often linked to their pension scheme. This aspect of Business Protection is often seen as a benefit of employment, rather than directly covering the business itself. The benefits to the business come in the form of encouraging high quality staff to join you, and keeping them once they do join.
For smaller businesses it isn’t always possible or cost-effective to set up a group death-in-service scheme. This is where a Relevant Life Policy can be useful.
Relevant Life Policies only cover individuals who receive a salary from the business. Therefore, sole traders / partners are not eligible for this type of cover (however, this does not preclude them from arranging individual life assurance, paid for out of their personal income).
A Relevant Life Policy can be used to cover company directors and business owners, provided it is a UK company and they receive a PAYE salary.
Taxation of Relevant Life Policies
Relevant Life Policies are tax-efficient because the premiums are usually an allowable business expense, which means that they can be offset against the Corporation Tax bill.
Contrast this to setting up personal life assurance paid for out of your post-tax (or net) income, which effectively works out much more expensive after your remuneration has been subject to Income Tax, Employers’ National Insurance and Employees’ National Insurance Contributions.
Therefore, higher-rate Income Taxpayers in particular can find that it is much cheaper to purchase the same level of life assurance cover through a Relevant Life Policy.
Other benefits of Relevant Life Policies
- It is distinct from pension contributions, meaning the pension ‘lifetime allowance’ (£1million for 2017/18) is unaffected.
- Individual cover, meaning that if a director or employee leaves the company, they can maintain their policy without further underwriting, simply by taking over payment of the regular premiums personally.
- More comprehensive cover. Typical death-in-service cover pays out three or four times an employee’s salary; Relevant Life Policies can insure up to 25 times your earnings (depending on your age and the insurance provider).
Furthermore, total remuneration can be taken into account, including (for example) salary and dividends, opening up further tax planning opportunities without affecting the level of life cover in place.
If you would like to know more about this, or any other part of Business Protection Assurance, then get in touch with us now.
This article is for information only, and does not constitute specific advice. We recommend speaking with a qualified professional before purchasing life assurance.
By Craig Hilton DipPFS